EMPLOYEE DISMISSALS

Employee dismissals are terminations from employment executed by an employer against the will of an employee. Two basic types of dismissals exist: reductions in force (RIF), which are also referred to as layoffs or corporate downsizing, and behavior-related terminations. Although employees may be terminated for no reason whatsoever under the employment-at-will doctrine, legal risks make such firings more difficult. Furthermore, some states have adopted fair-employment policies that limit the rights of employers to dismiss employees at will without good reason.

Various state and federal laws govern employee dismissals. These laws prohibit employers from terminating employees for their age, sex, ethnicity, and so forth. In addition, some courts and legislatures handed down rulings or enacted laws in the 1980s and 1990s that started to replace the employment at-will doctrine and require employers to have just cause for firing any employee.

Businesses tend to dismiss employees for a plethora of behavior-related reasons that generally fall into two primary categories: (1) low productivity and (2) unethical conduct. Inadequate job performance—failing to perform a job effectively and efficiently—can lead to employee terminations, especially when there is no shortage of workers to fill positions held by unproductive workers. Unethical conduct such as theft, dishonesty, and violation of company policies also can cost employees their jobs, since companies want employees they can trust and employees who follow company rules.

BACKGROUND

In 19th-century England, the employer/employee relationship was regulated by law: employers could not fire workers unless their conduct was unsatisfactory, and workers could not quit without providing sufficient notice. The United States adopted this system early in its development as well, but abandoned it beginning in the middle 1850s in favor of a more laissez-faire approach. In a landmark 1849 case, a federal court upheld the firing of a riverboat pilot without cause (Turesdale v. Young). Later, in 1877, Horace Gay Wood published his renowned Law of Master and Servant, which spelled out the "employment-at-will" doctrine that was emerging in the nation.

The employment-at-will doctrine was applied in both state and federal courts throughout the late 1800s and early 1900s. Among the most concise interpretations of the creed was that penned by the California Supreme Court in 1910: "Precisely as may the employee cease labor at his whim or pleasure, and, whatever be his reason, good, bad, or indifferent, leave no one a legal right to complain; so, upon the other hand, may the employer discharge, and whatever be his reason, good, bad, or indifferent, no one has suffered a legal wrong."

Although employees retained their employment-at-will rights, employers' rights to terminate workers at their discretion began to erode in the 1930s. In 1935, the federal Wagner Act of 1935 made it illegal for companies to fire employees because of union activity. Subsequent laws and court decisions during the mid-1900s reflected increasing concern about "wrongful discharge," implying that circumstances do exist in which it is legally wrong for a company to fire a worker. During the 1960s and 1970s, particularly, a number of new laws and regulations were enacted to protect workers from wrongful discharge in all types of cases, including those related to bias, whistle-blowing, and trait-related factors. These acts included the Civil Rights Act of 1964 and the Age Discrimination in Employment Act of 1967.

Employment-at-will remained theoretically intact during the 1980s and 1990s. A company could legally fire an employee without any reason whatsoever, or even for some arbitrary reason that had nothing to do with the worker's performance. State and federal governments and courts, however, began pressuring companies through legislation and rulings to refrain from unfair dismissals. Furthermore, some legal scholars gave this movement momentum by pointing out the inherent imbalance of power in the employment-at-will theory: generally an employee's need for a job greatly outweighs an employer's need for any particular employee.

Moreover, arbitrary firings continued to leave companies open to legal action on the grounds of age, disability, race, or sex discrimination (or some other type of discrimination against a legally protected minority) or for defamation of character, breaking an implied contract, or some other infraction that could be construed by the courts as constituting wrongful discharge. As a result, the employee dismissal process has become more complex and more formalized in most organizations.

BEHAVIOR-RELATED TERMINATIONS

Behavior-related dismissals represent a termination of an employer worker relationship by the employer as a result of the actions of the employee. Common behaviors that lead to terminations, in rough order of prevalence, include: absenteeism and tardiness, unsatisfactory performance, lack of qualifications or ability, changed job requirements, and misconduct—particularly drug abuse, theft, and dishonesty. The term "behavior-related" distinguishes this type of termination from trait-related dismissals, which are based on immutable characteristics of the employee, such as color of skin or physical disability. Trait related terminations may be legal if the employer can prove that the trait keeps the employee from performing a job satisfactorily. Such dismissals, however, are rare and legally risky because federal and state discrimination laws protect workers from terminations based on age, sex, ethnicity, etc.

Employers are generally allowed by law to terminate workers based on any type of behavior they deem unacceptable (or, technically, for no reason at all). Laws and court decisions, however, have protected some types of behavior when the employer's action is deemed: (1) a violation of public policy, (2) a violation of an implied contract between the employer and the employee, or (3) an act of bad faith.

One illustration of a public policy violation would be a company that fired workers because they refused to engage in unlawful acts, such as falsifying public financial documents or giving false testimony in court. Another public policy violation would be the firing of employees because they exercised a statutory right, such as the right to vote in an election or to worship at a church. A third type of infraction in this category would be the dismissal of employees for exercising their right to fulfill an important public obligation. Known as "whistle-blower" laws, legislation passed during the late 1900s serves to protect workers who expose corporate wrongdoing for public, not personal, interests. For instance, it would be illegal for a company to fire an employee who alerted authorities to the illegal dumping of toxic wastes.

Violations of implied contracts occur when a company dismisses a worker despite the existence of an insinuated promise. For example, if a company conveys to a worker that he will receive long-term employment in an effort to get the employee to take a job, the company could be liable if it fired the worker without what the courts deem just cause or due process. In a ruling that illustrates implied contract case, one court found that an employer had broken an implied contract when it terminated a poorly performing employee after 18 years of good service, because the company deprived the worker of pension benefits. Implied contracts often emanate from interviews, policy manuals, employee handbooks, or long-term patterns of behavior by the employer in a relationship with an employee.

An act of bad faith is vaguely defined and simply refers to an employer's duty to treat employees fairly and not use deceitful practices. For example, it might be considered illegal for a company to fire a worker because he refused to engage in an activity that a reasonable person would consider excessively dangerous or hazardous. Bad faith also covers cases where companies fire employees for no straightforward reason or produce contrived reasons after the dismissal. Even when an employer acts in good faith and does not violate the public trust or an implied contract, it can be legally liable for dismissing a worker for other reasons.

Specifically, an employer may be found liable if it can't prove that: (I) its decision to dismiss an employee is not founded on bias against a protected minority, or (2) the firing does not produce inequitable results. Suppose, for instance, that a company decided to fire all managers who did not have a college degree. Doing so, however, resulted in the dismissal of a disproportionate number of legally protected minorities from its workforce. The company could be held liable if it could not show that having a college degree was necessary to effectively execute the duties of the position.

Because firing employees can carry significant legal risks, employers started implementing new methods for terminating employees in the late 1990s. To increase the sense of fairness and just cause when dismissing employees, some companies adopted peer review programs where peer input helps determine whether or not employees are fired. By including coworkers in the process, employers spread out the responsibility for terminating employees, which can help dismissed workers avoid feeling singled out, fired unjustly, and disenfranchised.

In addition, some employers do not disclose the termination of employees to their work staff in order to avert lawsuits. Employers fear that if they share this information with their workers, they could face litigation because of how they describe the reason for the dismissal. In 1997 alone, terminated employees filed more than 50,000 wrongful-termination lawsuits in state and federal courts, according to the Chicago-based insurer Edgewater Holdings.

THE DISMISSAL PROCESS

Partially because of the legal risks inherent in dismissing employees, most companies terminate workers only after administering a progressive disciplinary and counseling process. Besides legal reasons, studies show that most companies try to correct behavior out of a perceived moral obligation to the employee. Furthermore, many employers benefit economically from correcting employee behavior, rather than terminating workers, because of the high costs of employee turnover and retraining.

Procedures that companies use to dismiss employees vary, especially if a labor union is involved. Most companies, however, employ some process of progressive disciplinary action that involves four basic steps: counseling, written reprimands, final written warnings, and dismissal. During counseling, an employee's superior brings the unacceptable behavior—the employee's poor performance or misconduct—to the attention of the worker and suggests methods of correction. If that fails, the superior issues a written reprimand, which serves to communicate the seriousness of the situation and to officially record management's good faith in rectifying the behavior. The written warning typically includes a description of prior counseling, defines expectations, and sets a time limit for the employee to rectify the problem.

If a written reprimand fails, a superior issues some form of final written warning to the worker. The written warning may include: copies and summaries of previous warnings, specific behaviors that need to be corrected, a time limit to make corrections, and a formal statement that specifies the actions that will be taken if the worker fails to reform. If the final warning does not produce the desired results, the manager or some other authority will terminate employment in writing. Often, an exit interview is conducted before the termination is finalized to give the employee a final chance to bring to light any factors neglected by management. The employee may be given notice or, as is often the case, told to gather belongings and immediately leave the premises to avert retaliation such as theft or destruction of property. Depending on laws and company policies, the company may provide severance pay, career and placement counseling, ongoing health insurance, or other post-termination benefits.